IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:

Budget Rent A Car System, Inc. v. Philadelphia Indemnity Insurance Company,

 

2018 BCSC 1564

Date: 20180917

Docket: S169536

Registry: Vancouver

Between:

Budget Rent A Car System, Inc. and
Ace American Insurance Company

Plaintiffs

And

Philadelphia Indemnity Insurance Company,
State Farm Mutual Automobile Insurance Company and
State Farm General Insurance Company

Defendants

 

Before: The Honourable Madam Justice Iyer

 

Reasons for Judgment

Counsel for the Plaintiff:

A.L. Eged
A. Jiwaji

Counsel for the Defendant, Philadelphia Indemnity Insurance Company:

V.J. Anderson

Counsel for the Defendants, State Farm Mutual Automobile Insurance Company and State Farm General Insurance Company

I.C. Hallam

Place and Date of Hearing:

Vancouver, B.C.

August 29 and 30, 2018

Place and Date of Judgment:

Vancouver, B.C.

September 17, 2018


 

Table of Contents

INTRODUCTION. 3

CHOICE OF LAW PRINCIPLES. 4

Nature of the Dispute. 5

Choice of Law Rule. 6

CONCLUSION. 12


 

INTRODUCTION

[1]             The parties to this proceeding are a number of insurance companies. The dispute between them concerns their respective responsibilities to contribute to the defence and indemnity costs arising from claims filed in this court by people who were injured in a motor vehicle accident that occurred in Vancouver in August 2011.

[2]             The vehicle involved in the accident was a rental van. The van was rented from the plaintiff, Budget Rent a Car Systems, Inc. (“Budget”) in California by an employee of the First Presbyterian Church (“Church”). At the time of the rental, the Church purchased supplementary liability insurance coverage (“SLI”) under terms of its rental agreement with Budget (“Rental Agreement”). The plaintiff, ACE American Insurance Company (“ACE”), provided the SLI coverage. The Church has an insurance policy with the defendant, Philadelphia Indemnity Insurance Company (“PIIC”) that, among other things, provides coverage for anyone authorized by the Church to drive a vehicle rented by the Church. Mr. Wilson was authorized by the Church to drive the rental van and he was driving it when the accident occurred. Mr. Wilson had personal auto insurance and general insurance policies with the defendants, State Farm Mutual Automobile Insurance Company and State Farm General Insurance Company (collectively, “State Farm”).

[3]             Six people injured in the accident filed civil claims against Mr. Wilson, and the Province of British Columbia commenced an action to recover health care costs relating to one of them (collectively, the “Actions”). As provided in the Rental Agreement, Budget and/or ACE defended Mr. Wilson and ultimately settled all of the Actions. Budget and/or ACE paid the legal costs associated with defending the Actions and the settlement monies, totalling over $2.5 million (“Claim Costs”).

[4]             In the underlying action, Budget and ACE claim that PIIC and State Farm are legally obliged to pay some portion of the Claim Costs. Whether and to what extent they must depends on the order of priorities among these various insurers. However, that is not the issue in this application.

[5]             After Budget and ACE notified the defendant insurers about the Actions, a disagreement arose over which of California or British Columbia had jurisdiction. PIIC commenced litigation in California. Budget and ACE commenced the action in this court. The California courts declined jurisdiction. Sharma J. held that the BC Supreme Court has jurisdiction over the dispute (2018 BCSC 163 “Sharma Decision”).

[6]             The single issue in the application before me is what jurisdiction’s law governs this dispute? The applicant, PIIC, says it is the law of California. The application respondents, Budget, ACE, and State Farm, say it is the law of British Columbia.

CHOICE OF LAW PRINCIPLES

[7]             Conflict of laws issues arise because different laws apply in different territories and a legal dispute can have a meaningful connection with more than one territory. Where the law of one jurisdiction could lead to a different conclusion on the merits of the dispute than the law of another jurisdiction, parties may argue about which law should apply. In this case, the Rental Agreement was signed in California but the Actions were commenced in BC. The parties agree that California law dictates a different order of priorities than the law of BC.

[8]             In order to resolve a choice of law issue, the court must characterize the nature of the dispute in order to select the applicable choice of law rule. That choice of law rule will say what connecting factor (or factors) should be given weight in determining which jurisdiction’s law should be applied. A connecting factor is something that ties the kind of claim or dispute to a particular location. Examples of connecting factors include: where the parties reside, where alleged wrongdoing occurred, and where an agreement was made. In choosing the applicable law, the court does not consider the content of the law or its application to the case. (Das v. George Weston Limited, 2017 ONSC 4129 paras. 223-225; Spiegel v. Meilman, 2017 BCSC 766, para. 15). Further, it is the true nature of the claim that must be characterized, and that is not determined by the nature of the remedies sought: Minera Aquiline Argentina SA v. IMA Exploration Inc., 2006 BCSC 1102, para. 164.

[9]             The underlying goal is to identify and apply the law of the place that has the most substantial connection to the nature of the claim. In Minera, Koenigsberg J. explained it this way:

197      A choice of law rule based on a strong, meaningful connection between the law and the obligation it will govern is consistent with the philosophy underlying private international law. As Hessel E. Yntema expressed in the article, “The Objectives of Private International Law” (1957), 35 Can. Bar Rev. 721, at p. 741, cited with approval in Morguard Investments Ltd. v. De savoye, [1990] 3 S.C.R. 1077, 52 B.C.L.R. (2d) 160 at para. 32:

In a highly integrated world economy, politically organized in a diversity of more or less autonomous legal systems, the function of conflict rules is to select, interpret and apply in each case the particular local law that will best promote suitable conditions of interstate and international commerce, or, in other words, to mediate in the questions arising from such commerce in the application of the local laws.

Nature of the Dispute

[10]         The parties disagree about how to characterize the nature of the dispute in this case. PIIC says that it is essentially a contractual dispute. Although PIIC acknowledges that there is no contract between the parties, it says that determination of the order of the priorities arises out of the parties’ various insurance contracts with the Church and Mr. Wilson. On that basis, they say that the applicable choice of law rule is the proper law of the contract.

[11]         The application respondents say that the essence of the dispute is equitable. It cannot be contractual precisely because there is no contract between the parties. They say that the plaintiffs’ claim is restitutionary, based on the doctrines of equitable contribution and unjust enrichment. This means that the applicable choice of law rule is the proper law of the obligation.

[12]         PIIC submitted that para. 123 of the Sharma Decision supports its position. That paragraph states:

There is a meaningful distinction between the issues in the proceeding and the issues in the Underlying Actions. Consistent with the approach to ss. 10(e) and (f), the issues in the proceeding (Budget’s action) must be the focal point of the analysis. It is relevant that the Underlying Action does involve a tort committed in British Columbia, but Budget seeks declarations and indemnity for what it says was PIIC’s failure to contribute to Mr. Wilson’s defence costs. The legal redress is based on contractual and restitutionary obligations, not damages for negligence. (Emphasis added)

[13]         I do not read that passage as PIIC does. In my view, Justice Sharma is simply distinguishing between contractual and restitutionary obligations on the one hand, and tort claims, on the other. She does not say or imply that Budget’s claim against PIIC is contractual.

[14]         I agree with the application respondents that the foundation and true nature of the dispute is restitutionary. The fact that the subsequent determination of the merits of the claim entails interpretation of the contracts does not make the claim contractual in nature.

Choice of Law Rule

[15]         The applicable choice of law rule is the proper law of the obligation. However, there is some uncertainty in the law about what factors should be considered in determining the proper law of the obligation, and little case law on that point.

[16]         All counsel referred me to the decision of this court in Minera. Although Minera does not concern a dispute about the order of priorities among insurers, the application respondents say that it is the only Canadian case that addresses what factors should be considered when the obligation in question arises in equity. PIIC also relies on Minera if the applicable choice of law rule is not the proper law of the contract, but is the proper law of the obligation.

[17]         In Minera, the plaintiff sued the defendants for staking a claim for a mine in Argentina based on their unauthorized use of Minera’s confidential geological information. The court characterized the dispute “an equitable claim for unjust enrichment arising from a breach of confidence” (at para. 181).

[18]         Justice Koenigsberg started her analysis of how to determine the proper law of the obligation by turning to Dicey and Morris:

185      Both parties rely on the choice of law rule set out by Dicey and Morris, On the Conflict of Laws. 12th ed. (London: Stephens, 1993) at p. 1471, though they differ on how the rule should be interpreted. Dicey and Morris state that the proper law of the obligation is to be determined according to the following subrules:

(a)  If the obligation arises in connection with a contract, its proper law is the law applicable to the contract;

(b)  If it arises in connection with a transaction concerning an immovable (land) its proper law is the law of the country where the immovable is situated (lex situs); and

(c)  If it arises in any other circumstances, its proper law is the law of the country where the enrichment occurs.

[19]         The parties in this case also disagree about how this rule is to be interpreted. PIIC says that subrule (a) applies because, although there is no contractual relationship between the parties, any equitable obligation on the part of the defendant insurers to contribute to the settlement costs incurred by the plaintiffs “arises in connection with” the various insurance policies. That would mean that the proper law of the obligation is the law of these contracts.

[20]         Budget says that subrule (a) does not apply, because the real source of the obligation is not the insurance policies, it is the Actions. It says that the filing of the Actions created the relationship between the insurers that gave rise to the dispute over of the order of priorities. Budget describes the insurance policies as a “condition precedent” for the obligation, and the Actions as the true source of the obligation. According to Budget, this situation falls under subrule (c), and the law that applies is the law of the country where the enrichment occurs.

[21]         ACE makes a slightly different argument. As I understand, it says that the obligation arises and the enrichment occurs where the plaintiffs demanded payment of, and/or the defendants failed to contribute to, the Claims Costs. I do not agree. In my view, the obligation in issue was created by entering into the insurance contracts and filing the Actions. The parties’ views about the nature of any obligation to contribute and indemnify are a consequence of the asserted obligation, not its source.

[22]         It is implicit in PIIC’s submission that the Dicey and Morris rules are hierarchical, such that if subrule (a) applies, subrule (c) does not. The plaintiff in Minera took the same position. In that case, either subrule (a) or subrule (b) could have applied, and the plaintiff said that subrule (a) took precedence.

[23]         Koenigsberg J. rejected that approach in favour of a principled approach, which she explained as follows (at paras. 195-196):

195      In my view, any difficulty arising from the apparent clash of the first two subrules can be resolved by taking a principled rather than a categorical approach to the choice of law issue. The essential question to be answered in choosing the appropriate law to govern a claim is, “what legal system has the closest and most real connection to the obligation?”. . . 

196      Thus, the principle underlying the subrules set out by Dicey and Morris appears to be the strength of the connection between the obligation and the competing legal systems. Additional support for this statement of principle can be found in Christopher v. Zimmerman (2000), 80 B.C.L.R. (3d) 229, 2000 BCCA 532, where our Court of Appeal found that the appropriate choice of law was the law of the place where the enrichment occurred because that was the law that had “the closest and most real connection” with the obligation in question. Similarly, in Unifund Assurance Co. v. Insurance Corp. of British Columbia, [2003] 2 S.C.R. 63, 2003 SCC 40, at para. 58, and Castillo v. Castillo, [2005] 3 S.C.R. 870, 2005 SCC 83, at para. 44, the Supreme Court of Canada emphasized the relative strength of the connection when it held that the connection required for choice of law issues must be more robust and requires a higher threshold than the “real and substantial” connection applied to questions of jurisdiction.

[24]         Koenigsberg J. then outlined the factors that ought to be considered when an obligation arises both in connection with a contract and with a transaction involving foreign land (at paras. 200-201):

200      In my view, a more principled approach to a case such as this one, where the obligation arises in connection with both a pre-existing contractual relationship and a transaction involving foreign land, would be to examine all the factors that could be relevant to the strength of the connection between the obligation and the competing legal systems. Such factors should be given weight according to a reasonable view of the evidence and their relative importance to the issues at stake. Thus, each of the factors listed by Dicey and Morris would be considered and weighed along with the following non‑exhaustive list of factors to determine which set of laws has the closest and most substantial connection to the obligation.

·        Where the transaction underlying the obligation occurred or was intended to occur;

·        Where the transaction underlying the obligation was or was intended to be carried out;

·        where the parties are resident;

·        where the parties carry on business;

·        what the expectations of the parties were with respect to governing law at the time the obligation arose; and

·        whether the application of a particular law would cause an injustice to either of the parties.

201      In many cases, perhaps most, it may be that the court will find after examining all the connecting factors that the law of the place where the enrichment occurred is in fact the law with the closest and most real connection to the obligation. However, in my view, that is a conclusion that the court should reach only after full examination and analysis.

[25]         Applying that approach in this case, the obligation that is the basis of the claim rests both on the applicable insurance policies and on the Actions. Put in other words, “but for” the fact that the insurance contracts were entered into, the plaintiffs could have no claim against the defendants. Equally, “but for” the Actions, the plaintiffs could have no claim against the defendants. It follows that all the factors connecting the insurance policies and Actions to the competing legal systems must be examined in order to determine what place has the closest and most real connection to the obligation claimed by the plaintiffs.

[26]         The proper law of the contract is determined by looking at the intent of the parties at the time the contract is made. Where the intention about what law applies is not expressed in the contract, it must be inferred from the circumstances at the time it was made. Family Insurance Corp. v. Lombard Canada Ltd., 2002 SCC 48, para. 17, (Re) Pope & Talbot Ltd., 2009 BCSC 1552 at para. 33. In Imperial Life Assurance Co. of Canada v. Colmenares, [1967] S.C.R. 443, the Supreme Court of Canada described the applicable connecting factors as follows (at p. 448):

The many factors which have been taken into consideration in various decided cases in determining the proper law to be applied, are described in the following passage from Cheshire on Private International Law, 7th ed., p. 190:

The court must take into account, for instance, the following matters: the domicil and even the residence of the parties; the national character of a corporation and the place where its principal place of business is situated; the place where the contract is made and the place where it is to be performed; the style in which the contract is drafted, as, for instance, whether the language is appropriate to one system of law, but inappropriate to another; the fact that a certain stipulation is valid under one law but void under another; ...the economic connexion of the contract with some other transaction; ...the nature of the subject matter or its situs; the head office of an insurance company, whose activities range over many countries; and, in short, any other fact which serves to localize the contract.

[27]         The contracts in this case are the Rental Agreement, the ACE insurance policy (which is the SLI in the Rental Agreement), the PIIC insurance policy and the State Farm policies. All of them were entered into in California. The head offices of the parties are in Delaware (Budget), Pennsylvania (PIIC and ACE) and Illinois (State Farm). The ACE policy was likely underwritten in New York or Pennsylvania. While there is no evidence about where the other policies were underwritten, it is important to note that there is no suggestion that any of the policies was underwritten in either California or British Columbia.

[28]         None of these contracts contain an express choice of law clause that applies in this situation.[1]

[29]         All of the contracts contemplate insuring vehicles that can incur liability in different jurisdictions. For example, the Rental Agreement limits liability to the minimum required by the law of the jurisdiction in which the accident occurs. The ACE policy addresses accidents that may occur in the US, Puerto Rico, the Virgin Islands and Canada, and it expressly excludes liability for accidents arising in Mexico. The PIIC policy expressly references out of state coverage extensions for covered vehicles. The State Farm automobile insurance policy provides for liability coverage in the US and Canada.

[30]         PIIC, ACE and State Farm have each filed a “Power of Attorney and Undertakings” (“PAU”) with Canadian insurance regulators. The PAU system was described by Binnie J. in Unifund Assurance Co. v. Insurance Corp. of British Columbia, 2003 SCC 40, as follows (at para. 92):

92        The PAU system is an interprovincial (and interstate) web of interlocking arrangements for substitutional service and undertakings designed to ensure that travelling motorists are financially responsible for their actions in other provinces and participating states, by confirming that their insurers will respond to claims in respect of an accident which occurs outside the insured’s home jurisdiction. . . 

[31]         I agree with PIIC that the PAU does not prevent PIIC from raising a choice of law argument (see Unifund at para. 97). However, it demonstrates that PIIC and the other PAU insurers contemplated that liability under their policies could arise in all of the jurisdictions listed in the PAU. That includes British Columbia.

[32]         The Actions were commenced in British Columbia because the accident occurred here.

[33]         This evidence shows connections to a number of jurisdictions. In my view, the jurisdiction with the closest and most real connection to the obligation in issue in this case is British Columbia. In making this finding, I place considerable weight on the fact that the commencement of the Actions, which was necessarily in British Columbia, is the event that triggered the interaction of the various insurance contracts and the obligation that is the basis of the plaintiffs’ claim. I appreciate that the insurance contracts are equally essential to that claim and all were entered into in California. However, there is no evidence that they were underwritten there. More importantly, the contracts expressly contemplate liability arising from motor vehicle accidents outside the jurisdiction where the policy was purchased.

[34]         The insurers in this case are all sophisticated parties. The provisions of their policies that relate to motor vehicles contemplate that the vehicles would be driven in jurisdictions other than the one in which the vehicle was hired, and that accidents could occur in those places. The insurers entered into PAUs that provide for defending actions that are commenced in the listed jurisdictions, one of which is British Columbia. Consideration of the policies themselves does not establish a strong connection to California. Had the insurers intended the law of a particular jurisdiction to apply to situations where a covered driver or vehicle is involved in an accident regardless of where the accident occurs, they could have said so.

[35]         It is arguable, following Dicey and Morris’ subrule (c), that the enrichment occurred at the place where the defendants decided not to contribute to and indemnify Budget and/or ACE for the settlement costs of the Actions. However, as was the case in Minera, following a principled approach means that the place of the enrichment is not always the place with the strongest connection to the obligation. Here, the Actions had to be commenced in British Columbia because that is where the accident occurred. Commencement of the Actions was the event that triggered the interaction of the various insurance policies, giving rise to Budget’s and ACE’s claim for contribution and indemnity. This factor both localizes the insurance contracts to British Columbia and grounds the obligation claimed by the plaintiffs here. I conclude that the law that applies to the claim is the law of British Columbia.

CONCLUSION

[36]         The application is dismissed.

“IYER J.”



[1] The ACE policy contains a choice of law provision that is triggered if ACE fails to pay the amount claimed by its insured.